UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 15795 / June 30, 1998
Securities and Exchange Commission v. James G. Freeman, et al., (United
States District Court for the Northern District of California, Civil Action
No. C-96-2316).
The Securities and Exchange Commission announced that on April 29, 1998,
Magistrate Judge Bernard Zimmerman of the United States District Court for
the Northern District of California entered an Order of Disgorgement and
Other Relief against James G. Freeman (Freeman) and 18 companies controlled
by Freeman, holding Freeman and the corporate defendants jointly liable for
disgorgement of $10,823,727.74 in illegal profits, but waiving payment of
all but $15,444.78 based on defendants' financial inability to pay.
Defendants consented, without admitting or denying the allegations in the
Commission's complaint, to the entry of the Order. Freeman and 19 of the
corporate defendants had previously consented to the entry of an Order of
Permanent Injunction enjoining them from further violations of Sections
5(a), 5(c), 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act of 1933
and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder. [See Litigation Release No. 15130, October 21,
1996] The April 29, 1998 Order concludes the litigation.
The Commission's Complaint, filed on June 25, 1996, alleged that, among
other things, during the period from approximately April 1994 through April
1995, Freeman operated a nation-wide "Ponzi" scheme involving nearly 500
investors and raising over $26 million in proceeds. During the one-year
period, Freeman and the companies offered and sold promissory notes
("Freeman notes"). The Freeman notes were renewable every 9 months and
guaranteed a 12% annual return. In addition, investors were promised a
"longevity bonus" equal to 8% interest on all funds maintained in the
alleged investment for each year the Freeman note was renewed. The
investor funds raised through the sale of the Freeman notes allegedly were
to be invested in various European ventures. In reality, however, Freeman
deposited all investor funds into bank accounts under his control and used
the proceeds to make purported interest payments, pay exorbitant
commissions, satisfy unrelated business and personal expenses and meet
obligations to prior investors.
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